If new entity A buys patent from entity B at cost, and then turns around an raises 3 million based off the intellectual property, can the IRS contest the sale? What if same people own entity A and entity B.?

ANSWER

The BIDaWIZ Team's Answer:

Do you have a fair market value for the patent? Is there an appraisal or other qualified valuation method that you used? If the fair market value at the time of the sale is above the cost basis, the IRS can certainly conclude that the sale was not properly consummated. If the cost basis is in fact higher than the FMV, then that wouldn't pose a problem. However, you indicated the risk for raising $3 million in the future based on the IP of that patent. If that occurred, there's certainly reason to believe that the IRS may context the initial sale as not being arms-length in nature.